Rules Altered For Small Groups

Florida's 15,000 small businesses likely will have to pay more for their health insurance because of laws that became effective this month, and one-person small businesses may find it harder to get.

Legislation signed into law by Gov. Jeb Bush means that small businesses -- from one to 50 employees -- can be hit with a 10 percent surcharge by insurance carriers if one or more employees or their family members get sick and file claims.

And beginning a year from now, one-person new businesses will have only one month each year in which they can apply for coverage and not be turned down if they have had medical problems.

The changes alter many of the insurance reforms passed in 1993 to make coverage more affordable and accessible for small businesses. Under those reforms, insurers were permitted to use only five criteria for setting rates -- age, sex, location, family composition and tobacco use.

That changed effective July 1. Now, small businesses can have their premiums raised by a maximum of 10 percent per year above the average rate the insurer charges other customers.

"They have just totally ripped the guts out of small group health reforms," said Rick Schwartz, a Coral Springs independent insurance agent whose clients include small businesses. "The whole point of insurance is spreading the risk. When someone gets sick, they don't do that on purpose."

Rich Robleto, bureau chief of life and health forms and rates at the Florida Department of Insurance, said there has been much confusion about the changes because there were three bills in the Legislature, all were signed into law, and they did not agree on some points.

Two of the bills said that effective July 1, 2000, one-person businesses may only buy new coverage during one month of the year, between Aug. 1 and Aug. 31. The coverage would become effective Oct. 1. If they fail to find coverage during the August open enrollment period, they can't apply again until the following year.

But the third, HB 591, is the applicable bill because it was the last to be signed by the governor, Robleto said. It says that between July 1, 2000, and July 31, 2001, basic and standard small-employer health insurance plans must be issued and offered on a guaranteed-issue basis to eligible one-person businesses.

But some companies have already stopped writing such policies and others were not renewing them, according to Belinda Miller, director of the Division of Insurer Services at the insurance department.

"We got some complaints that there were companies that essentially shut down writing [policies for] groups that were eligible for coverage," Miller said.

After a department investigation, Insurance Commissioner Bill Nelson issued an order July 14 saying each insurer writing policies for small groups must continue to offer coverage on a guaranteed-issue basis through July 31, 2001. The one-month open enrollment period for groups of one will be from Aug. 1 to Aug. 31, 2001.

Insurers, agents and small businesses have also questioned the department about how much premiums can be raised each year.

"I think there was some confusion that the rate could only go up 10 percent a year, but that will be on top of any normal rate increase. There is really no ceiling in the statutes on how much a rate can go up or down in a year," Robleto said.

"What happened is they have added another component to your rate increase, based on health status, claims experience and duration of coverage," he said. That increase is limited to not more than 10 percent in one year, and not more than 15 percent over the span of the policy.

That increase would be in addition to the average annual rate increase being charged other customers, Robleto said.

Ellynn Hoffer-Carbon, of Boca Raton, past president of the Florida Association of Health Underwriters, said the new laws were needed because small-group health insurers were leaving the state to get better terms elsewhere.

Healthy self-employed people were able to buy a cheaper policy in the individual market, which allows insurers to check an applicant's health history before setting the premium, Hoffer-Carbon said.

"They got medically underwritten and went through with flying colors," she said.

Self-employed people with health problems sought coverage through the small group market because the 1993 reforms guaranteed they could not be turned down and did not have to pay more than healthy people, Hoffer-Carbon said.

"The small group market became a very unhealthy place, so this just down-spiraled over a period of time," she said.

Schwartz said most insurers have discouraged the sale of policies in the guaranteed-issue small group by reducing the commissions to agents to as little as 1 percent.

That means if he sells a policy that carries a premium of $265 per month, he receives $2.65 per month for his efforts, no matter how much travel and paperwork are involved.

"They never wanted to write those policies to begin with," Schwartz said. "But I've fooled them. I continue to write it because I consider it an important service. I really am pretty morally outraged at what's going on. I understand business is business, that doctors have to be paid, hospitals have to be paid, but people should not be penalized because they're sick. "

Nancy McVicar can be reached at nmcvicar@sun-sentinel.com or 954-356-4593.